Government spending on health, age pensions and aged care is set to increase significantly over the next 40 years, and policy reforms must be implemented now to ensure that Australia does not experience a welfare-driven European-style financial crisis, according to a new report.
Churn, where the state taxes a person and then returns that tax to them in the form of welfare services and income support payments, is a $158 billion problem in Australia, says The Centre for Independent Studies’ Andrew Baker, policy analyst and author of TARGET30 – Tax welfare churn and the Australian welfare state.
The Commonwealth government spends $10 billion every year to employ around 70,000 people to collect taxes and give them back to us via the welfare state.
‘For decades governments have remained fixated on providing middle-class welfare, instead of giving support to people who really need it – for example, people with disability. We need government to cut welfare spending on people who are not poor and cut their taxes instead,’ says Mr Baker.
‘Middle-class welfare is a tremendous cost on our $316 billion welfare state, with the typical Australian household receiving more in benefits each week ($462) than it pays in total taxes ($348).’
‘Our TARGET30 campaign is about practical policy solutions to reduce government spending. Welfare is one of the largest areas of government expenditure, and there are ample savings to be found by reforming the age pension, family payments, and the disability pension.’
‘To reduce the budget pressures from an ageing population, we need to implement reforms that ensure more people use more of their own money to pay for their retirement.’
‘The reforms should include a requirement for superannuation to be used to purchase an annuity, raising and aligning the age pension and preservation ages, and reducing pension indexation rates.’
‘Family Tax Benefit Part B should be abolished. People earning up to $150,000 a year or more are not poor and do not need income support. Winding back the Schoolkids Bonus can save $1.2 billion, and more savings could be found by means testing Carer Allowance and the Child Care Rebate,’ says Mr Baker.
‘Reforming the DSP to align it with the objectives of the NDIS will lead to more savings and increased economic growth. We need to introduce compulsory participation requirements for DSP recipients with a partial capacity to work and reassess the current DSP cohort under tougher eligibility criteria introduced last year.’
Other parts of the welfare state in need of immediate reform include unemployment benefits, aged care, Medicare, the Pharmaceutical Benefits Scheme, and school and tertiary education.
‘If we cut spending we can cut taxes, improve economic growth and empower more people to take more responsibility for their own welfare,' said Mr Baker.
Andrew Baker is a Policy Analyst at The Centre for Independent Studies. He is available for comment.
The CIS report, TARGET30 – Tax welfare churn and the Australian welfare state, is available at the CIS website.
A Snapshots document is also available online.
Mr Baker discusses the findings of the report in this YouTube video.